External Sector & International Institutions

US Tariff Impact on India’s Export Economy

Context : The United States has imposed sharp tariff hikes on selected Indian products, triggering a decline in bilateral trade and amplifying short-term economic volatility. Beginning August 2025, the US levied a 50% tariff on designated Indian goods, consisting of:

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  • 25% penalty tariff linked to India’s discounted purchases of Russian crude oil, and
  • An additional 25% import duty across sensitive categories.

This marks one of the most significant tariff escalations in recent India–US trade relations.

Major Impacts of the Tariffs

1. Export Decline

India’s outbound trade registered a sharp contraction:

  • October exports ↓ 9%, following
  • A deeper 12% fall in September, leading to
  • A cumulative 11.8% decline in goods exports.

2. Record Trade Deficit

India’s trade deficit widened to $41.68 billion in October, the highest on record, driven by:

  • Higher imports of gold,
  • Lower demand for Indian goods in the US market.

3. Bilateral Trade Surplus Shrinks

India’s long-standing trade surplus with the US fell by 54%, reducing a key buffer in India’s external trade position.

4. Sectoral Stress

Indian labour-intensive exporters faced steep price disadvantages compared to ASEAN and Chinese competitors.

  • Engineering goods: ↓ ~16%
  • Textiles & apparel: ↓ 8.34%
  • Gems & jewellery: ↓ 25%

5. Resilient Sectors

Despite overall contraction, two sectors showed robust performance:

  • Electronics: Exports increased 25%, driven by smartphone and semiconductor-linked production.
  • Pharmaceuticals: Continued stable double-digit growth due to strong US generics demand.

Government Support Measures

India has activated a combination of fiscal, credit, and regulatory interventions to stabilise exports:

1. Export Promotion Mission (EPM)

The Cabinet approved a ₹25,060-crore scheme (FY 2025–30) to strengthen logistics, standards, branding, and global market access.

2. Credit Guarantee Scheme for Exporters (CGSE)

A ₹20,000-crore scheme to provide collateral-free credit, easing financial strain on MSME exporters.

3. RBI Liquidity Relief

The Reserve Bank of India announced a four-month moratorium on principal and interest payments for affected exporters, ensuring short-term liquidity.

4. QCO Rollback

To reduce compliance costs and prevent supply bottlenecks, the government rolled back Quality Control Orders on key chemical intermediates.

Conclusion

The US tariff measures have caused immediate pressure on India’s export competitiveness and widened the trade deficit. However, India’s policy response—spanning credit support, export promotion, easing of compliance norms, and sector-specific interventions—aims to cushion the economy in the short run.

Over the long term, India must diversify markets, enhance high-value manufacturing, and strengthen resilient supply chains to withstand global tariff shocks.

Why does India not import corn from the US?

Context: The US Commerce Secretary has questioned India for not opening up its market to American Corn. Differences over agricultural trade is at the heart of the trade dispute between India and the US.

Relevance of the Topic: Prelims: India-US Trade dispute: Agriculture Sector 

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Why does India not import corn from the US? 

There are three reasons why India does not buy American Corn:

  • Self-sufficiency in Corn production: India produces around 34-36 million tonnes of corn annually, making it the world’s fifth-largest producer of corn. 
  • Concerns over GM Corn: The US grows more than 90% of its corn from GM seeds. However, India does not permit the cultivation or import of genetically modified food or feed (with the exception of GM cotton). 
  • Protect farmers’ interest:
    • India needs to protect its fragile agricultural sector that employs 500 million people against imports from countries that heavily subsidise their agriculture. Allowing cheaper GM imports would undercut Indian farmers. 
    • Smallholders (backbone of India’s agricultural economy) fear that allowing GM corn would open the gates to multinational corporations controlling seed markets. Dependence on patented seed technology could erode centuries-old practices like seed saving, while also raising questions of consumer safety and environmental impact. 

Reasons the US is exploring alternate markets:

  • China has been a major buyer of US corn, taking nearly a third of America’s exports. After the recent US-China trade war, China has begun to buy corn and soyabeans from Brazil, throwing the US agriculture sector into a crisis.
  • With India’s rising corn consumption (particularly for ethanol-blended petrol programme), the US sees an enormous opportunity to export corn to India. 

Increased demand for corn in India:

  • Traditionally, corn is consumed into poultry feed, starch, and processed foods. 
  • In recent years, a growing share has been diverted toward ethanol production. In the latest cycle, India used 3.5 million tonnes of corn to produce around 1.35 billion litres of ethanol. 
  • With the government pushing for 20% ethanol blending in petrol by 2025-26, annual corn demand for biofuel alone could rise to 6-7 million tonnes.
  • In 2024-25, India imported 0.97 million tonnes of corn (most of which came from Myanmar and Ukraine which export non-GM corn that meets Indian standards). The imports from the US were miniscule (just 1100 tonnes). Thus, there is some scope for corn imports from the US for use in producing ethanol. 

However, importing GM corn even for ethanol production has been firmly rejected, with sugar mills and farmer unions warning it could marginalise sugarcane and disrupt the ethanol-blended petrol programme. 

Also Read: US’s Tariffs: Nature, Impacts, and Lessons for India 

The dispute reflects not just trade imbalances but a deeper clash over farming practices, food security, and agricultural sovereignty.   

ICC issues Arrest Warrant against Taliban Leaders 

Context: The International Criminal Court (ICC) issued an arrest warrant for two senior Taliban leaders for the crime of persecuting women, girls, and others who oppose the gender policy of the government. 

Relevance of the Topic: Prelims: Rome Statute, Facts about ICC. 

ICC issues Arrest Warrant against Taliban Leaders

  • Warrant issued against: Two senior Taliban leaders- Supreme leader Hibatullah Akhunzada and the head of Afghanistan's Supreme Court- Abdul Hakim Haqqani.
  • Ground: On charges of systematic persecution of women and girls. 
  • Legal Basis- Afghanistan’s ICC Membership: ICC has jurisdiction over crimes committed on Afghan soil or by Afghan nationals after Afghanistan acceded to the Rome Statute in 2003. 

Systematic Persecution of Women and Girls in Afghanistan:  

  • Taliban has severely deprived girls and women of:
    • basic human rights like education, privacy, and family life
    • freedoms of movement, expression, thought, conscience, and religion.
  • E.g., barring girls from secondary schools, beauty salons, excluding women from most workplaces, and restricting their movement without a male guardian.
  • 144-page Morality Law (2024) promulgated by the Taliban includes provisions requiring women to cover their entire body in public, and to not sing or even speak in public. It forbids women and men from looking at each other in public, and provides for the persecution of LGBTQIA+ people. 

What is the International Criminal Court? 

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ICC’s law on Crimes Against Humanity: 

Article 7(1)(h) of the Rome Statute of the International Criminal Court defines crimes against humanity as : 

  • Crimes against humanity include persecution against any identifiable group or collectivity on political, racial, national, ethnic, cultural, religious, gender… or other grounds universally recognised as impermissible under international law, carried out as part of a widespread or systematic attack directed against a civilian population.

Impact of the ICC's Warrant:  

  • The warrants mark the first time the global court has taken legal action directly against the Taliban leadership for gender-based persecution. 
  • However ICC’s warrant is unlikely to result in any arrest, as Taliban rejects ICC jurisdiction, rendering the warrant unenforceable in Afghanistan.

Review of the India-ASEAN AITIGA

Context: In a bid to increase Indian exporters’ utilisation of the India-ASEAN Free Trade Agreement, which is way below 50%, the government is collecting inputs from the industry to understand the possible reasons behind the underutilisation or non-utilisation and rectification of the issues.

Relevance of the topic:

Prelims: About India-ASEAN FTA.

Mains: Reasons behind the underutilisation or non-utilisation of INDIA-ASEAN FTA.  

India-ASEAN Free Trade Agreement

  • Formally known as the ASEAN-India Trade In Goods Agreement (AITIGA).
  • Signed in: 2009, Bangkok. Implemented in 2010.
  • Aim: To promote free flow of goods, enhance economic integration, and strengthen bilateral ties through: elimination or reduction of tariffs, improved market access, deeper economic cooperation. 
  • Members: Indonesia, Malaysia, the Philippines, Singapore, Thailand, Brunei, Vietnam, Laos, Myanmar and Cambodia. 

Key Features of AITIGA: 

  • Coverage: Only trade in goods (services & investment covered in later agreements)
  • Tariff Reduction: Phased reduction/elimination on over 80% of tariff lines.
  • Sensitive List: Countries can maintain “sensitive” and “exclusion” lists for protection.
  • Rules of Origin (RoO): Minimum 35% value addition & change in tariff subheading is required. 
  • Safeguard Mechanism: Allows re-imposition of tariffs temporarily to protect domestic industry.
  • Dispute Settlement through consultation and mutual resolution mechanisms.

Evaluation of AITIGA: 

  • It has resulted in a steady widening of the trade deficit between India and the 10-member bloc. 
  • India’s exports to the ASEAN bloc declined 5.7% to $38.96 billion in FY25. While imports increased 5.6% to $84.16 billion, increasing the trade deficit to $45.2 billion in FY25 from about $8 billion in 2010.
  • More than half the exports taking place from India to the ASEAN countries are happening outside the free trade framework with exporters paying regular import duties (MFN rates) and not the preferential or zero-duties agreed under the pact.

Key Challenges in Utilisation of AITIGA:

  • Underutilisation of Duty Benefits: Less than 50% of Indian exporters use the FTA benefits.
  • Lack of Awareness: Many small exporters are unaware of procedures or benefits under AITIGA.
  • Complex Rules of Origin (RoO): Difficulty in understanding and meeting origin criteria for COO certification.
  • Procedural Delays: Delays in obtaining Certificate of Origin (COO). 
  • Conflicting interpretations of rules between Indian and ASEAN authorities.
  • Difficulties in customs clearance process and inconsistent guidance from logistics providers, agents, or consultants

Government Reviewing AITIGA:

  • Exporters were asked about their awareness of COO procedures and challenges in interpreting Rules of Origin.
  • Inputs sought on difficulties in tracing origin of raw materials and delays in obtaining COOs.
  • Concerns regarding documentation costs, agency fees, customs clearance issues, and inconsistent guidance from intermediaries were also invited.

Strategic Significance of ASEAN for India

  • Central to India’s Act East Policy. ASEAN is India’s 4th largest trading partner. 
  • Key to countering China in the Indo-Pacific region. 
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India's Net Foreign Direct Investment drops by 96.5%

Context: According to the data released by the Reserve Bank of India (RBI), India witnessed a sharp 96.5% drop in net foreign direct investment (FDI) in FY25. 

Relevance of the Topic: Prelims: Key concepts- Foreign direct investment; net foreign direct investment (FDI). 

Drop in net foreign direct investment (FDI)

  • India witnessed a sharp 96.5% drop in net foreign direct investment (FDI) in FY25. The net FDI fell to $353 million, the lowest on record, from $10 billion in FY24.
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What is net foreign direct investment (FDI)?

  • Net FDI is the difference between FDI inflows by other countries into India and FDI outflow due to direct investments made by Indians abroad. 

Net FDI = (Gross investment - Repatriation) - FDI Outflow 

Components of Net FDI: 

  • FDI Inflow (Gross FDI) is gross investment minus repatriation/disinvestment.
    • Gross Investment includes- Fresh equity inflows (shares allocated to foreign investors), Reinvestment of profits by foreign companies in India, other capital inflow (loans from parent company to subsidiary) 
    • Repatriation/ disinvestment- Foreign companies removing capital out of India. 
  • FDI Outflow is the investment by Indian companies abroad. 

The net FDI drop is due to: 

  • surge in repatriation/disinvestment of existing investments through profitable initial public offerings (IPOs).
  • Indian firms increased their investments overseas.

While the net FDI dropped, gross FDI remained concentrated in core sectors like manufacturing, financial services, energy, and communications, which accounted for more than 60% of total inflows.

RBI relaxes FPI investment limit in Corporate Debt Securities

Context: The Reserve Bank of India (RBI) has relaxed norms for foreign portfolio investors (FPIs) investing in corporate debt securities through the general route. 

Relevance of the Topic: Prelims: Key facts related to FPI norms.

Major Highlights:

  • Foreign Portfolio Investors (FPIs) in corporate debt securities will no longer be required to adhere to the short-term investment and concentration limits. The decision, effective immediately, aims to provide greater ease of investment for FPIs. 

Earlier Regulations

  • Short-term investment limit: FPIs were restricted from investing more than 30% of their total investment in corporate debt securities with residual maturity up to one year.
  • Concentration limit: For long-term FPIs, investment in a single corporate issuer could not exceed 15% of their corporate bond portfolio. For other FPIs, this limit was 10%.

Now both these limits have been withdrawn. FPIs can now invest more freely in corporate debt securities, without being constrained by maturity or issuer concentration limits. This relaxation comes in the backdrop of the financial markets facing volatility due to geopolitical tensions and tariff wars. 

Corporate Debt Securities:

Financial instruments issued by companies to raise funds from investors. In return the companies offer the investors regular interest payments and the return of principal at maturity. E.g., Corporate bonds, debentures, Non-Convertible debentures, Commercial Papers etc.

Significance of the Reforms: 

  • Liberalise India’s debt market: It is a major step toward liberalising India's debt market.
  • Retention of foreign capital: It gives more options to FPIs to park the proceeds from their sale in the equity markets in corporate debt securities at attractive interest rates without having to immediately repatriate the proceeds.
  • Diversification of Investor base: Attracts a wider range of global institutional investors, reducing dependence on domestic funding sources.
  • Improve Market liquidity: Eased investment norms are likely to increase demand for corporate debt instruments, thereby improving market liquidity, reducing cost of capital for firms, and promoting financial deepening.

Challenges

Despite these changes, foreign investors might still hesitate to invest more due to two key reasons:  

1. Narrowing US-India 10-Year Yield Spread:

  • The 10-year yield spread is the difference between the interest rates (yields) on Indian government bonds and US government bonds.
  • A higher spread means Indian bonds offer better returns compared to US bonds, which attracts foreign investors.
  • Currently, this spread has narrowed to around 200 basis points (2%), meaning the extra return from Indian bonds is less attractive. This reduces the incentive for FPIs to take the additional risk of investing in India.

2. External Risk Factors:

  • External Risk Factors like geopolitical tensions, US Federal Reserve interest rate changes etc. These risks can make investors risk-averse, leading them to prefer safer assets in developed countries.

While the reforms create better long-term conditions for corporate bond market growth, meaningful FPI inflows may only materialise when yields are attractive.

India and UK conclude Free Trade Agreement

Context: India and the United Kingdom have signed a Free Trade Agreement (FTA) granting zero-duty to 99% of Indian exports and reducing tariffs, expected to create large opportunities for Indian firms, significantly boost bilateral trade, and attract key investments.

Relevance of the topic:

Prelims: Key facts related to India-UK trade deal.

Mains: Significance of India-UK trade deal.

India- UK Free Trade Agreement

  • India and the UK have concluded a historic Free Trade Agreement (FTA) that promises to deepen bilateral economic ties, enhance strategic cooperation, and boost trade and investment. It is India's 16th FTA. 
  • India's FTAs: India has inked trade deals with Sri Lanka, Bhutan, Thailand, Singapore, Malaysia, Korea, Japan, Australia, UAE, Mauritius, the 10-nation bloc ASEAN (Association of Southeast Asian Nations), and four European nations' bloc EFTA (Iceland, Liechtenstein, Norway, and Switzerland), UK. 

What is a Free Trade Agreement?

  • FTA is a bilateral or multilateral understanding where participating countries consent to eliminate or lower customs duties on the bulk of traded goods. 
  • These agreements also involve reducing non-tariff barriers on substantial imports from partner countries whilst simplifying regulations to enhance services trade and cross-border investments.
  • FTAs enable zero-duty entry into partner country markets, allowing for greater diversification and expansion of export destinations.
  • By securing preferential treatment over non-FTA member competitors, domestic exporters enjoy a level playing field, especially when other nations have already established similar agreements. 
  • FTAs attract foreign investments and help stimulate domestic manufacturing.

Key Highlights of the India–UK FTA

The India-UK free trade agreement and Double Contribution Convention pact is expected to lead to significant economic benefits for both the countries.

  • 99% of Indian exports will receive duty-free access to UK markets. India stands to gain substantial advantages from tariff elimination on approximately 99% of tariff lines, which covers nearly 100% of trade value.
  • India will reduce import tariffs on 90% of UK tariff lines, with 85% becoming fully tariff-free  within 10 years.
  • India will receive advantages from the UK's FTA commitments in various service sectors, including IT/ITeS, financial, professional, and educational services.
  • India agrees to lower tariffs on various products, including whisky, medical devices, advanced machinery, and lamb, enhancing the competitiveness of UK exports.
    • Automotive tariffs will be significantly reduced from over 100% to 10% under a specified quota system.
    • Whisky and gin tariffs are to be halved from the current 150% to 75% before reducing to 40% by year ten of the deal.
  • Double Contribution Convention: Indian professionals working temporarily in the U.K. will be exempt from paying social security for up to three years, reducing the financial burden on both employees and employers.
  • It will facilitate easier movement for skilled workers, including contractual service suppliers, business visitors, investors, intra-corporate transferees, family members of transferees with work authorization, and Independent Professionals such as yoga instructors, musicians and chefs.
  • Sectoral Boost: Sectors which are set to benefit in India include textiles and apparel, leather and footwear, gems and jewellery, pharmaceuticals, agriculture and processed foods etc.  
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major gains for Indian

Significance of INDIA-UK FTA

  • Strengthening Strategic Economic Partnership: It aligns with the shared ambition to scale bilateral trade to USD 100 billion by 2030. Thus, fostering deeper economic interdependence between the world’s fifth and sixth largest economies.
  • Tariff Reductions and Economic Efficiency: Tariff reduction on goods like cosmetics, medical devices, aerospace parts, food items (lamb, salmon, chocolate, biscuits, soft drinks) and electrical machinery will: 
  • Open new market access for UK exporters in India.
  • Reduce input costs for Indian businesses using these goods.
  • Provide Indian consumers with more affordable and diverse products.
  • Strengthen value chains, especially in high-tech and FMCG sectors.
  • Expansion of Market Access: It creates large opportunities for Indian companies to expand further and access new markets. By unlocking new export opportunities, reducing trade barriers, and enabling greater access to the U.K. market.
  • Strengthen Indian textile and apparel sector: It will strengthen the labour-intensive Indian textile and apparel sector, positioning India as a major textile hub. Knitwear exports, which currently constitute 9% of total exports to the UK, are expected to rise to 20% post-FTA. 

The India-UK Free Trade Agreement is not just a trade fact, it is a bridge to shared prosperity. Amid global trade wars, rising protectionism, and economic decoupling, the agreement offers certainty and stability to bilateral economic relations. 

Illegality of US Reciprocal Tariffs

Context: Reciprocal tariffs imposed by the US are seen as illegal under World Trade Organisation (WTO), especially as they violate the principle of Most-Favoured-Nation (MFN).

Relevance of the topic:

Prelims: Key facts about Most Favoured Nation status of WTO.

Mains: Critical Assessment of India’s strategic silence amid rising opposition to US reciprocal tariffs.

What is MFN and the Principle of Reciprocity?

  • Most Favoured Nation (MFN) status is one of the cornerstones of the WTO trade law. 
  • MFN works on the principle of reciprocity i.e., quid pro quo principle where both nations enjoy MFN status of each other.
    • Each member of WTO treats all the other members equally as the most-favoured trading partners. 
    • If a country improves the benefits that it gives to one trading partner, it has to give the same best treatment to all the other WTO members.

Illegality of US Reciprocal Tariffs

As per MFN principle, WTO member countries must treat all members equally in trade matters. The Reciprocal tariffs imposed by the US selectively targets certain countries, thus breaching this principle.

The world’s response on this issue has been divided into three categories:

  • Open Criticism and Legal Action: Countries like Singapore, Brazil, China, Japan, and Canada have publicly condemned the US for violating WTO rules, filed disputes at the WTO (China and Canada) and imposed retaliatory tariffs (E.g., China and Canada).
  • Diplomatic Restraint: States like Fiji and Italy have expressed dissatisfaction, albeit in less direct terms, characterising the US tariffs as ‘unfair’ or ‘mistaken’.
  • Strategic Silence: Some countries like India have chosen to maintain silence regarding the US’s illegal actions. India, a historical proponent of Global South solidarity and trade multilateralism, has abstained from a collective WTO members' statement opposing the US tariff regime.

India’s Diplomatic Posture

India has maintained strategic silence for two reasons: 

  • Bilateral Trade Negotiations with the US: India is negotiating a Bilateral Trade Agreement (BTA) with the US and may fear that criticising the US could derail or complicate negotiations. 
  • Dysfunctional WTO Dispute Settlement Mechanism: Filing a case in WTO is futile due to the paralysis of the WTO Appellate Body since 2019. 

Criticism of India’s Strategic Silence

  • Speaking against a violation of WTO rules does not mean retaliating against the US, rather, it signals commitment to legal norms.
  • Filing a complaint in WTO, even if symbolic, challenges power with principle. Vocal opposition to illegal tariffs, even in the absence of effective WTO enforcement, can serve as a signal of India’s principled foreign policy and reinforce its credibility among the Global South.

The current juncture presents an opportunity for India to reassert its commitment to a fair, rule-based international economic order. As multilateralism faces increasing strain from unilateralist tendencies, India must balance its national interest with normative leadership.  

India-US Trade Deal Negotiations amid Reciprocal Tariffs

Context: The Ministry of Commerce and Industry has stepped up efforts by expanding its NAFTA division (which handles India’s bilateral trade with the United States, Canada, and Mexico) to strike an early trade deal with the US, and potentially sidestep the 26% reciprocal tariffs. 

Relevance of the Topic: Mains: Impacts of Reciprocal Tariffs on India; India-US Trade deal- challenges.  

US Reciprocal Tariffs on India

  • Recently, the US has imposed 26% reciprocal tariffs on all Indian exports to the US.
  • The US goods trade deficit with India was $45 billion in 2024.
  • India's main exports to the US: Drug formulations and biologicals, telecom instruments, precious and semi-precious stones, petroleum products, gold and other metal jewellery, ready-made garments of cotton, and products of iron and steel.
  • India’s Imports from the US: Crude oil, petroleum products, coal, coke, cut and polished diamonds, electric machinery, aircraft, spacecraft and parts, and gold. 

Impacts of Reciprocal Tariffs over India

1. Potential Negative Impacts:

  • The sectors expected to be most impacted include: Electronics and smart phones, Marine products, gold and other metal jewellery, electrical machinery, textiles. 
  • Global Trade Research Initiative (GTRI) estimates that India’s exports to the US might decline by over 6% or around $5.7 billion in 2025.

2. Window of Opportunity: Relative Tariff Advantage 

  • India has a relative advantage over other countries, as the tariffs over India (26%) are lower than that in other countries, like, China (34%), Thailand (36%), Bangladesh (37%), Vietnam (46%) etc. This differential could encourage the US firms to diversify supply chains away from high-tariff economies towards India. 
  • Certain sectors can benefit, particularly electronics manufacturing, Textiles and apparel etc.

India’s Options

  • Selective Tariff Reductions: Identify sectors where tariff reductions would have minimal domestic impact and could accommodate U.S. interests. India is considering slashing tariffs on 55% of the US exports to India, worth about $23 billion.
  • Negotiating bilateral trade agreement: India can push towards negotiating a bilateral trade deal with the US. If India delays, it could risk losing market share in the US to countries (like Vietnam, Cambodia) which are aggressively pursuing trade deals with the US.
  • Trade diversification with other countries and regional groups, like the UK, European Union, African countries, ASEAN countries etc. to reduce the reliance on the US markets. 

Bottlenecks in negotiating bilateral trade agreement

  • Limited progress on Trade Agreements: India has not yet signed a comprehensive trade agreement with any major Western country, including the US, UK or EU. The major hurdle is India's resistance to incorporating labour and environmental standards, which are often prerequisites for Western trade deals.
  • Data localisation norms: The US has raised objections to India’s data localisation requirements for payment service providers, which restrict foreign firms from freely transferring user data abroad.
  • Weak Intellectual Property Rights (IPR) protection: India remains on the US 'Priority Watch List’ due to delays in patent approvals and the absence of strong laws for trade secret protection. This deters American innovators and firms from entering the Indian market.
  • Non-tarriff barriers: E.g., The US is critical of India’s price caps on coronary stents and knee implants. These controls are viewed as non-tariff barriers that hinder US companies’ ability to operate profitably in India. 

US-India Agriculture Trade and Reciprocal Tariffs

Context: The US is India’s top market for agricultural goods, with bilateral farm trade totalling $6.6 billion in 2024. The US has imposed a 26% “reciprocal tariff" on Indian imports. The introduction of a ‘reciprocal tariff’ policy may pose certain challenges to agri-exports from India.

Relevance of the Topic:Mains: India-US Agriculture trade- Statistics, Potential, Challenges, Way forward

Key Stats India-US Agri Trade

  • Tariff Disparity: Historically, a tariff disparity of 32% has existed between India and the US. India imposes an average 37.7% tariff, while the US applies only 2.6% on agricultural products. A reciprocal tariff policy could impact the trade dynamics between the two countries.
  • Bilateral Trade Statistics (2024): 
    • Total India-US agricultural trade: $6.6 billion
    • India’s exports to the US: $5 billion
    • US exports to India: $1.5 billion
  • India’s Agricultural Imports from the US primarily include Pulses, vegetable oils, tree nuts and Fresh fruits. Tariff changes could disrupt this trade. 

Impacts of Tariffs on India’s major Agri-Exports to the US

  • Tariffs can hit key agricultural exports, particularly basmati and non-basmati rice, shrimp, wheat, and buffalo meat, which together account for 46% of India’s farm trade with the US.
  • Shrimp (India’s largest seafood export to the US) will become un-competitive in the US market. Currently, it is subjected to around 7% duty including countervailing duty and anti-dumping duty. With the increase (26%) in tariff, Indian exporters would be subjected to 33% tariff.
  • Tariff hike on processed foods, sugar, and cocoa exports will make Indian snacks and confectionery less attractive to US buyers.
  • Dairy products (ghee, butter, and milk powder) would be costlier in the US.

Potential for India’s Agri-Exports to the US: 

  • India can expand its export portfolio by increasing trade in: Rubber and derivatives; Beverages, spirits, and vinegar; Tobacco; Fish and dairy produce; Cotton. 
  • GTRI has suggested that to soften the impact, India can propose a 'zero-for-zero' tariff strategy' to the US, under which both countries would mutually eliminate tariffs on select goods rather than negotiating a full bilateral trade agreement. 

Indo-Pacific Economic Framework for Prosperity (IPEF)

  • Signed in May 2022 between the US and 13 Indo-Pacific countries, including India.
  • Aims to: Strengthen food safety and trade standards; Reduce agri-trade barriers for US agricultural exports.

Challenges Hindering India’s Agri-Export Growth

  • Logistics and Infrastructure Issues: India’s logistical efficiency improved from 54th in 2014 to 38th in 2023 (World Bank’s Logistics Performance Index). However, India still lags behind countries like Canada, China, South Africa, and Malaysia. Cold storage and supply chain infrastructure remain major bottlenecks.
  • High Post-Harvest Losses: 40% of food waste in India due to poor post-harvest management (FAO report). 30% of fruits and vegetables perish due to inadequate storage.
  • Stringent Sanitary and Phytosanitary (SPS) Standards: Trade agreements by the US, European Union etc. require adherence to strict environmental and quality regulations. Attaining compliance remains a major issue in increasing exports to these countries. 
  • Structural Issues in Indian Agriculture: Small and fragmented landholdings reduce economies of scale. Lack of aggregation and processing facilities for small and micro-enterprises results in limited value addition in agricultural produce and makes them less competitive in global markets. 

Way Forward for Strengthening India’s Agri-Exports

  • Modernising supply chains with improved cold storage and logistics.
  • Enhancing compliance with international food safety and environmental regulations.
  • Diversifying export products to reduce dependency on a few commodities.
  • Strengthening trade agreements to secure preferential access to US markets.
  • Supporting small farmers through aggregation models and export incentives.

India imposes Anti-dumping duty on Chinese goods

Context: India has imposed Anti-dumping duties on five Chinese goods to protect domestic industries from cheap imports. The trade action was announced based on recommendation from the commerce ministry's investigation arm DGTR (Directorate General of Trade Remedies). 

Relevance of the Topic:Prelims: Anti-dumping duties.

Anti-Dumping duty

  • Anti-dumping is a protectionist tariff that a domestic government imposes on foreign imports that it believes are priced below fair market value.
  • Anti-dumping duties are imposed under WTO rules (World Trade Organisation) to ensure fair trading practices and a level-playing field for domestic producers vis-a-vis foreign producers and exporters.
  • Article 6 in the General Agreement on Tariffs and Trade (GATT) allows countries to take action against dumping.
  • In India, DGTR conducts probes periodically to check for the impact of cheap imports on domestic industries. A product is considered to be dumped when a producer exports his product at a price lower than its value in its domestic market.

Recent Anti-Dumping Measures on China

  • The government has imposed duties on the following five Chinese products:
    • Soft Ferrite Cores (essential for electric vehicles, chargers, and telecom devices).
    • aluminium foil (essential packaging material)
    • Vacuum insulated flask
    • Trichloro Isocyanuric Acid (widely used water treatment chemical)
    • Poly Vinyl Chloride Paste Resin
  • China is India's second largest trading partner. India had a widening trade deficit with China at $85 billion in FY2023-24.

Rationale behind Anti-Dumping duties

  • Protection of domestic Industries: Influx of low-cost Chinese imports pose significant challenges to Indian manufacturers, cutting their market share and affecting profitability. 
  • Fair Trade Practices: These duties discourage the dumping of goods. By implementing it, India ensures adherence to fair trade norms as mandated by WTO.
  • Reducing Import dependence: By discouraging cheap imports India aims to enhance domestic manufacturing capabilities.  

The imposition of these duties aligns with India's broader strategy of safeguarding its industrial base while ensuring a level playing field for domestic producers.

India’s Aluminium Exports to the US: Impact of New Tariffs

Context: The US under the Trump Administration has increased tariffs on Aluminium imports from 10% to 25% (effective March 12, 2025). 

Relevance of the Topic: Prelims: Key trends in India-US trade relations; Protectionist policies. 

Overview of India’s Aluminium Exports to the US: 

  • India is the world's second largest aluminium producer after China. 
  • The US has become India’s largest market for aluminium exports, particularly for aluminium conductors used in power transmission. 
  • Key Indian Aluminium Products Exported to the US:
    • Aluminium Conductors used in high- and medium-voltage cables for power transmission- 38% of US imports (by weight) in 2024, valued at $130 million. 
    • Unwrought aluminium – $185 million
    • Nails and fasteners – $107 million
    • Aluminium wire – $98 million
    • Aluminium tube and pipe fittings – $16 million (26% of US imports in this category)
  • India’s aluminium exports to the US have grown significantly :
    • 2016-17: $350 million
    • 2022-23 & 2021-22: Over $1 billion each year
    • 2023-24: $946 million
    • Despite this growth, India accounts for only 3% of total US aluminium imports. 

US Tariff Policies : Then and Now

  • 2018 Tariffs (Trump’s First Term): 
    • Imposed 25% tariffs on steel and 10% on aluminium. 
    • Some countries (E.g., Canada, Japan, EU, Mexico) were exempted, but India was not.
    • Despite tariffs, India’s aluminium conductor exports to the US increased. 
  • 2024 Tariffs (Trump’s Second Term): 
    • New tariffs of 25% on aluminium imports, effective March 12, 2025.
    • Broader coverage – includes semi-finished and finished aluminium products.
    • Justification: Prevent tariff evasion and strengthen the US aluminium industry. 

Impact on India’s Aluminium Industry: 

  • India exports 40% of its aluminium production, with 6-8% of total exports going to the US. Tariffs may reduce export volumes and revenues for Indian aluminium manufacturers.
  • Downstream aluminium industry (E.g., machinery components, fasteners, wires) will also face challenges. 

Comparison with the Steel Industry

  • India’s steel exports to the US are lower (4% of total exports in 2024). Direct impact on steel sales is limited, but there could be an indirect effect due to China’s excess steel entering India. 
  • The new US tariffs also extend to steel products, affecting multiple sectors. 

The new 25% tariffs will impact export revenues, but aluminium exports form a small share of overall business for most Indian companies. Diversification of export markets and domestic demand growth could help offset losses from the US market. 

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